Rising Treasury yields once again put pressure on big tech companies on Tuesday, pushing U.S. stock indexes even lower than their recent record highs.
The S&P 500 lost 0.3%. Healthcare stocks also pulled the market down, outpacing the gains of banks, industrials and companies that rely on consumer spending. Small businesses resisted the downtrend, pushing the Russell 2000 Index up 1.7%.
Treasury yields rose after a report showed consumers feel even more confident than economists expected, a big deal for an economy made up mostly of consumer spending. In addition, President Joe Biden is set to unveil details today of plans to spend what could amount to more than $ 3 trillion on infrastructure and other measures to help the economy and the environment. .
The consumer confidence report and the prospect of increased government spending fueled a sell-off in US bonds, pushing their yields higher.
“It scares off debt investors,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
The S&P 500 slipped 12.54 points to 3,958.55, its second consecutive decline. The Dow Jones Industrial Average fell 104.41 from the previous day’s record 0.3% at 33,066.96. The Nasdaq composite fell 14.25, or 0.1%, to 13,045.39. The Russell 2000 went from 37.11 to 2195.80.
The spotlight was once again on the bond market, where the 10-year Treasury yield rose to 1.73% from 1.72% on Monday night. It fell from around 0.9% at the start of the year due to rising expectations for economic growth and possibly inflation.
When bonds pay more interest, they can make investors less willing to pay high prices for stocks, especially those considered the most expensive. Firms that ask their investors to wait years for strong earnings growth to materialize are also hit hard, with many large tech stocks feeling the most pain from the rate hike.
Broadcom fell 3.5% and Cisco Systems fell 1.4%. Tech giants also fell, including a 1.2% drop by Apple and a 1.4% drop by Microsoft. They were among the biggest winners at the start of the pandemic, rallying to expectations that they can grow in the future, whether or not the economy is blocked by a virus.
Despite the pressure on big tech stocks, most professional investors remain bullish that the market as a whole may continue to rise. A stronger economy from covid-19 vaccinations and significant U.S. government spending is expected to help boost profits for many companies this year, especially those like banks, power producers, and industrial companies.
Much of the market turmoil reflects this expectation. Investors have shifted money from companies like Amazon and Netflix – which have benefited from a locked down world – to airlines, automakers and others who are poised to benefit from a wider reopening.
“Overall, we are moving in the direction of trade rebalancing,” said Greg Bassuk, President and CEO of AXS Investments. “In the next immediate period, we will continue to see significant volatility.”
Financial stocks rallied, in part because higher longer-term interest rates translate into higher profits from loans.
Media companies ViacomCBS and Discovery gained 3.6% and 5.4% respectively, ending a multi-day crisis.
Information for this article was provided by Yuri Kageyama of The Associated Press.